from the watch-out dept

We've argued, for a long time, that just railing against "middlemen" misses the point. There are always middlemen. But not all middlemen are created equal. The distinction, that we've discussed multiple times, is the difference between enablers and gatekeepers. That is, historically, many middlemen came to power because they were gatekeepers. If you wanted to do something -- be a musician, write a book, sell a new product -- you effectively had to get "approval" and support from a gatekeeper who had access to those markets. Being a gatekeeper gave them enormous power, such that the gatekeepers often became central to the market, rather than the people/companies they were working with and it also allowed them to craft ridiculous deals that were incredibly favorable to themselves, at the expense of those they were working with. That, of course, is why there tends to be so much inherent antipathy towards traditional gatekeepers.

In contrast to that -- and what we found most exciting about many of the new companies that had popped up over the last decade or two -- was the rise of middlemen as "enablers." These were situations where the middlemen weren't gatekeepers, and weren't "required" to do what you wanted to do. Instead, they were companies that helped give people/organizations a lift up on what they were trying to do, while keeping them and their work (rather than the middlemen) central to the market. So, when you see things like eBay or Etsy or Kickstarter, those are more enablers (and, yes, they do have some restrictions on use, but they're more policy based, rather than "can you make us money"-based).

Of course, the truth is that there's a spectrum along which these middlemen lie. It's not two separate buckets, where "enablers" are here and "gatekeepers" are there. Rather, intermediary companies often fall somewhere along that spectrum. It seems somewhat clear that, for the most part, newer firms are becoming successful by being enablers, rather than gatekeepers. But... they don't necessarily remain enablers their whole lives. One thing that is worth paying close attention to, is how companies shift over time, and when they start to shift from being enablers to being gatekeepers.

In fact, it seems like some of the big "clashes" we've been seeing in the tech/web world lately are along those lines. Lots of people have talked about Instagram and Twitter fighting with each other, which is just the latest in a series of "fights" among hot web companies blocking each other. Considering that many of these companies grew up on a web 2.0 ethos of openness and sharing -- and we're now watching them get more locked down, proprietary and limiting -- it seems obvious that some of these companies are moving along the spectrum from enabler to gatekeeper.

Anil Dash recently wrote a great post in which he frets about the fact that we're effectively losing key parts of the open web, which made the web great. You should read the whole post, as I couldn't do it justice summarizing it here. Again, it seems like many of his points are really about some of the more successful "internet" companies moving along that spectrum more towards the gatekeeper side of things, and that clashing with the more open spirit that the enablers built their reputations on. Dash, rightly, points out that this is self-correcting over time. We shouldn't necessarily fear the new gatekeepers, mainly because a gatekeeper business model, while lucrative in the short-term, is unsustainable in the long term. Companies, which move along that chain chasing the easy money, need to learn that they do so at their own peril. Becoming a gatekeeper merely opens up massive opportunity for a new enabler to disrupt you. That's a lesson that too many companies learn way too late.

That said, Dash fears that because a new generation is growing up in a world with more closed systems, that we may lose some generational knowledge of what came before:

This isn't some standard polemic about "those stupid walled-garden networks are bad!" I know that Facebook and Twitter and Pinterest and LinkedIn and the rest are great sites, and they give their users a lot of value. They're amazing achievements, from a pure software perspective. But they're based on a few assumptions that aren't necessarily correct. The primary fallacy that underpins many of their mistakes is that user flexibility and control necessarily lead to a user experience complexity that hurts growth. And the second, more grave fallacy, is the thinking that exerting extreme control over users is the best way to maximize the profitability and sustainability of their networks.

The first step to disabusing them of this notion is for the people creating the next generation of social applications to learn a little bit of history, to know your shit, whether that's about Twitter's business model or Google's social features or anything else. We have to know what's been tried and failed, what good ideas were simply ahead of their time, and what opportunities have been lost in the current generation of dominant social networks.

I both agree and disagree. I'm among those who get a bit frustrated when I see new entrepreneurs trying something that was done before -- and they seem to have no knowledge of it (ditto for reporters who cover the big "new thing" without mentioning that half a dozen companies did exactly the same thing a decade earlier). But, some of that, I'll admit, may just be the onset of old fogeyism. Yes, there's value in knowing the past, and learning from it, but there is also value in the naivete with which some new entrepreneurs jump into the pool -- often not fully understanding the past. Will they repeat some of the mistakes? Sure. Absolutely. But not being burdened with the past can sometimes be a key ingredient in redoing something that failed in the past, and in somehow making that slight unexpected tweak that just makes it work.

So, I agree wholeheartedly that the "new gatekeepers" mean that we've lost some sense of what made the last generation of internet companies great. And I do hope that the next generation that comes along can similarly disrupt the last generation, often by being the enablers that break up their new gatekeeper role. And I think that companies who understand the history of how enablers disrupt gatekeepers should understand why progressing down that spectrum in search of short-term profits can lead to long-term pain. So I think it's wise for those companies to learn from history. But I'm less worried about the new entrepreneurs jumping into the space. They'll likely find their opportunities in being the new enablers, because that's where the disruption occurs.

Watching the cycles of innovation can be a fascinating (and at times frustrating) past time. Companies make the same mistakes over and over again. The ones, which actually don't fall for the usual traps, are few and far between. But, in the long run, the new startups tend to be pretty good at showing the old guard that they chose the wrong path.

from the also-known-as-'progress' dept

I recently joked that it felt like the main purpose of Kickstarter seemed to be to convince the world they wanted simplified wallets and fancy ink pens. If you don't spend much time on Kickstarter, you may have missed that those two categories seem to account for a somewhat-larger-than-expected percentage of projects that people find interesting. The wallets, in particular, fascinate me, because thereareanabsolutelyinsanenumberofnewwalletprojects, withnearlyeverysingleoneclaimingtohavereinventedwallets. I had no idea that the wallet market was open to such disruption.

Of course, it may be open to an entirely different form of disruption. As Nick Bilton at the NYTimes recently pointed out, as his smartphone has been able to do more and more, he's beginning to think that wallets may be becoming entirely obsolete. There's almost nothing he still needs to carry on his person since nearly everything that used to be in his wallet can now be taken care of via his smartphone:

Printed photos, which once came in “wallet size,” have been replaced by an endless roll of snapshots on my phone. Business cards, one of the more archaic forms of communication from the last few decades, now exist as digital rap sheets that can be shared with a click or a bump.

As for cash, I rarely touch the stuff anymore. Most of the time I pay for things — lunch, gas, clothes — with a single debit card. Increasingly, there are also opportunities to skip plastic cards. At Starbucks, I often pay with my smartphone using the official Starbucks app. Other cafes and small restaurants allow people to pay with Square. You simply say your name at a register and voilá, transaction complete.

But wait, what did I do with all of the other cardlike things, like my gym membership I.D., discount cards, insurance cards and coupons? I simply took digital pictures of them, which I keep in a photos folder on my smartphone that is easily accessible. Many stores have apps for their customer cards, and insurance companies have apps that substitute for paper identification.

It's not entirely obsolete, but Nick makes a compelling case that it's heading in that direction. To be fair, many of the new wallets seen on Kickstarter are, in effect, responses to this trend. The most popular styles appear to be "simplified" or "minimal" wallets that shrink down what you have to carry, so that you can just take the few essential cards with you. But, it's possible that many people will be able to get by entirely without a wallet in the not-too-distant future.

This, in turn, reminded me of something else: about how disruption may destroy industries while making our own lives better in the process -- but that simple economics tends to do a bad job recognizing that. I've talked about how traditional economic measures might measure the wrong thing. So, if we're looking at wallets, for example, those in the wallet-making business might claim that this move towards the digitization/smartphonification of everything is "bad" for the "wallet industry." That's obviously silly, and most people aren't too concerned about the wallet industry. But that ignores just how many industries are being totally upended by the smartphone. Think of all the things you don't need any more due to the smartphone. A few months back, the Cato Institute put together a fun chart on "dematerialization" due to the smart phone, trying to make the argument that advances in technology, such as the smartphone, might also be good for the environment, since they lead to people needing a lot fewer physical devices, since they're all packaged into that tiny device in your pocket:

Of course, what this also points out is the nature of disruption and innovation. Disruptive innovation, by its nature, destroys entire industries or segments of industries by making them obsolete. If you simply measure the economic impact on the fact that those industries are no longer present, or that those products are no longer being sold for hundreds of dollars, you could argue that there's a negative impact on the economy. But, if you flip it around and look at (a) how much better our lives are, in that we have access to all that at the touch of our finger tips in a single smartphone, and (b) that as compared to buying all those other devices, individuals actually get to keep more money to themselves (though, not necessarily in their now obsolete wallets) to be spent in more productive ways, it seems like it's actually a really good thing.

But this is something that we often struggle with from a policy standpoint. While no one claims to be missing "the fax" industry, lots of industries at risk of disruption will do all sorts of things to angle policy makers into blocking that disruption, by arguing about the economic impact of their own industries, and falsely implying that, if they're disrupted away, all of that money somehow "disappears" from the economy. But the nature of innovation is that we make things obsolete by making other things better and more powerful and changing the way we do things. The end result is, generally speaking (and, yes, there are exceptions), better for everyone, enabling them to do more with less and do so more productively. Whether it's a "wallet" or the entire list of things in the graphic above, progress has an amazing way of destroying old ways of doing business, and we shouldn't fear or worry about that, we should celebrate it.